Colorado Springs Real Estate Investing Podcast

Instead of competing against 20 offers, say, we’re now only competing against 15.  Our agent Leah even helped a new client get their very first offer accepted, and it appraised for more than the contract.  We’re not sure what explains the lessening competition, although the average number of people walking through a property dropped from 18 in April to 15 in May.  It’s possible people are starting to go on vacation again and that seasonality is coming back to the market for the first time since COVID upended things.  

I always tell my clients that there’s no perfect scenario for investing in real estate, so it’s important to look at the big picture.  Price points are high right now, but we also have historically low interest rates.  This may be the only time buyers can get an investment property with an interest rate in the 3% range.  Now is a good time to take advantage of cheap long term debt and ride the wave of growth.  If you’re interested in investing, reach out to me and I will help you figure out how to achieve your goals.

Here are the summary stats for CO Springs for may.  It was a really strong month!

Source: The above executive summary is from Lon Welsh of Your Castle Real Estate.

For information on how to get started investing in Colorado Springs, check out our free 2021 Colorado Springs Real Estate Investing Guide.

These clients had previously worked with Chris Lopez and Preston Newberry to buy a condo up in Denver.  They decided they wanted to look for a multi family property in the Springs to get the most bang for their buck.  

Their key strategy is maximizing leverage by taking advantage of low interest rates.  Fourplexes were on their radar because it would enable them to acquire the greatest number of units for a conventional loan and ride out the low interest rates.  

Deal Overview 

This is a fourplex located in Colorado Springs.  Fourplexes are in high demand and don’t often come on the market.  It took my clients about five months until they were able to purchase this property.  

Contract

My clients submitted an offer back in March but didn’t get it.  In May, I got a call that the property was falling out of contract and the agent wanted to know if my clients were still interested.  I checked with them and they were, so I got the offer over within an hour.  The agent called other people who had also submitted offers, but because I was able to get ours in so quickly, they went with it.  

Inspection Issues 

There were no major issues that came up during inspection.  The exterior balcony system will need to be replaced, and some other minor exterior maintenance will also need to be addressed.  Since nothing needs to be fixed right now, my clients will wait until something needs to be taken care of and use their reserves budget to pay for it.  

Interesting Points 

The property was listed at $625K and we were able to negotiate it down to $619K.   Originally, it went under contract at $640K, but the appraisal came in at $570K and the initial buyers couldn’t fill the appraisal gap so that first contract terminated.  I mentally prepared my clients that they would need to pay this gap when they went under contract, but our appraisal came in right at $625K.  

The interesting and frustrating thing about appraisals is that both of those are correct; appraising is a lot of art and subjective opinion and I can’t always predict how they will turn out.  I wasn’t surprised at either appraisal since fourplexes are trending up pretty significantly and quickly.  

Stabilization 

All four units currently rent for $1000 a month.  The rents could probably be pushed to $1050 as the leases turn, and with some TLC could go for $1100.  One of the leases expired during the contract phase and my clients requested the seller not fill it so that the new property manager could select the next tenant.  

This property’s cap rate is just under 6 which is extremely hard to find in the Springs.  Most of the fourplexes we analyzed were all break even.  I’m not sure why anyone would want to buy a fourplex that would only break even, because they involve so much more work than smaller properties.

A lot of clients want to buy a multi family property like this one, but it’s not a frequent occurrence that something like this will come on the market.  My advice if you’re interested is to be patient and wait for the right one to come along.  

If you’re in the market for an investment property, reach out to me via email or fill out the consultation form on our website.

For information on how to get started investing in Colorado Springs, check out our free 2021 Colorado Springs Real Estate Investing Guide.

This is a 1970s 3 bedroom 1 bathroom single family home in central Colorado Springs.  I purchased it in 2017 for $110K.  Currently, my loan balance is $116K because several years ago I did a BRRRR on it.  

In today’s market, I think it could sell as is for around $235K.  If I were to put $15K-$20K into a cosmetic rehab, it could likely sell for around $280K.  

I’ve been self-managing the property and have a long-term tenant in place who pays $1100 a month.  This rate is well below market, but the tenant has been great and this property only requires about five minutes of my time a month.  If this tenant were to leave, I could probably rent the property at $1250 as is or $1450 after rehab.  

We use a Return on Equity (ROE) spreadsheet to run analyses for our clients on properties they’ve owned for a few years.  ROE is a way to measure a property’s performance and how much return you’re making from its equity.  After a few years of ownership, the initial analyses we perform are no longer up to date.  

The spreadsheet runs four scenarios:

We ran all of the scenarios to see what’s my best option moving forward: 

Looking at these outcomes, I don’t see a clear winner since none of the options come back with particularly large variances.  If I had to choose, I would have to decide if I wanted more cashflow or if the other benefits of real estate, such as debt paydown and appreciation, were more important to my current needs. 

Generally, if you can find a new property that will have a higher cap rate than your current property, it is probably worth either doing a refinance or selling the property in order to get the higher performing cap rate.  

Keep in mind, though, that refinancing and selling both require effort.  In my case, this property has a great tenant and requires very little of my time, so I’m not sure that it would be worth the mental load to change anything.  The difference would have to be more substantial in order for me to commit the time and effort of changing anything.  

At this point, I’m going to keep the property as is for as long as my tenant wants to live there.  If he were to tell me he wants to move out, then I would likely put in the money to rehab the house.  I may consider doing the maximum cash refinance option if I could get a lower interest rate, though the likelihood of that is slim.  

Chris asked me if I would consider doing a Home Equity Line of Credit (HELOC) for this property.  I’ve done a HELOC on a similar property before, and my credit score went down as soon as I took out the money because it’s considered a revolving debt.  Before making any moves that could affect you, make sure to talk to at least one lender to see what the effects would be and what steps you would need to take. 

If you have a property that you’d like to analyze, reach out to us and we would be happy to walk you through your options and give our advice.  Sometimes the best move is to sell and buy a new property, but oftentimes a refinance or doing nothing is the better option.  Our main goals are to build long-term relationships and help you optimize your portfolio.

If you would like more information on analyzing Return on Equity, check out our free online Investment Property Analysis Course which walks you through the four ways you make money in real estate investing. Module #3 covers Return on Equity.

Corporate rentals, or medium-term rentals, are for renters who need a place to stay over 30 days but less than a long-term lease.  Usually, these stays are for 1-3 months.  For investors, corporate rentals can be a sweet spot between short- and long-term rentals since they’re less labor intensive than short-term but go for higher rates than long-term rentals.  I sat down with Diana Tapia of Dublinplace Corporate Housing based in Colorado Springs to learn more about corporate rentals. 

In 2016, Diana owned a fourplex in Colorado Springs that she ran as a short term, VRBO-style rental.  She dreamed of living overseas, but that vision was not compatible with the labor-intensive work of running a short term rental.  

When her tenant of seven years ended their lease, she decided to take a risk and list the unit as a corporate rental instead.  There was—and still is—a shortage of housing for military families in the area who need short term housing before transitioning to military housing.  Instead of charging $650 a month for the unit, she rented it out at $1600 for a three month lease and quickly found a renter. 

Soon, she had enough income to spend two years traveling and volunteering in South America.  She decided to turn her success into a business that helps other real estate investors with their own corporate rentals.  

A corporate rental lease is longer than a short term rental, which is 30 days or less.  The average corporate rental length is three months, though one month or even years long stays are possible.  Rates for corporate rentals are higher than typical rentals, and the units are fully furnished and equipped with basic necessities.  While there has been a slew of legislation regulating short term rentals, such as Airbnb’s, corporate rentals have yet to be affected because they are considered medium or long term rentals. 

When it comes to what type of property makes the best corporate rental, Diana’s philosophy is that less is more.  Because of the high rate these properties go for, less square footage will yield the greatest return.  That doesn’t mean that investors should find the smallest property to rent out, though.  Since renters will be staying for at least a month, they want to be able to have some space and feel at home.  Diana’s sweet spot for size is 1500sqft max and finds that townhouses are the best units.  That way, people will feel like they’re living in a real home, but Diana doesn’t have to spend the extra money on furnishing and maintaining a large space.  Most of her properties are located in northern Colorado Springs, though the downtown area is hot right now, too.  

Generally, people in transition are the biggest users of corporate rentals.  Typically, the renters are individuals in the medical field, a research and development company housing employees, or real estate buyers and sellers between properties.  The average income of renters is $260K per year.  

Dublin Place offers two main services for property owners: advertising and support services.  Investors can choose how much or how little involvement they want from the company.  The only areas that the company cannot help with are financial or legal matters.  

When Diana started in the world of corporate rentals, she decided to create her own website to advertise her properties.  She was so successful that soon other owners were reaching out to her asking if they could advertise their properties on her website, too.  Now, investors can team up with Dublin Place to market their properties.  They receive a property evaluation and list of recommendations to make sure the property is in line with the exclusive rentals in which Dublin Place specializes.  

Support services help owners get in place everything they need to be successful in renting out their properties.  These services can range from buying and staging furniture, to white glove cleaning services, to arranging contractors to make repairs.  Owners are in charge of coordinating deposits with renters, though the cleaners will provide them with a checklist of any missing or damaged items.  That way, the owners can determine how much of the deposit to return.  

I happen to own a townhouse next door to one of Diana’s properties, so it was easy to do a side by side comparison of a long term rental vs a corporate rental.  I ran the numbers using the Rental Property spreadsheet.

The biggest difference in initial costs between a long term and corporate rental is that corporate rentals are fully furnished.  Diana’s average cost for buying furniture, linens, and other essentials and having them professionally staged is around $13-16K.  

When I was able to rent out my townhome as a long term rental for $1695 a month, I was very pleased.  But when I saw that Diana’s townhome goes for $2900 a month, I was blown away.  Even though the vacancy rate for a corporate rental greater, 8% compared to 3%, the higher rent more than makes up the difference. 

Other unique costs for a corporate rental are a personal property assistant and advertising.  The personal property assistant manages the day to day aspects of the rental, such as checking renters in and out, coordinating repairs, and replacing items that are damaged or running low.  These services together run about $5K per year.  

Diana recommends that property owners call their insurance companies to see what is covered if they switch their homes from a long term to corporate rental.  Most companies have this coverage built in, but it’s usually worth it to see if there is additional coverage available.  The cost of this type of insurance may be a bit more expensive, but it’s usually not significant.  

The first year returns analysis shows just how different long term vs corporate rental properties are.  The annual cashflow for a corporate rental townhome is nearly double that of the long term rental home, even though the homes themselves are the same.  Altogether, the corporate rental yields a much stronger return than the long term rental.    

If you are an investor interested in turning your property into a corporate rental, reach out to Diana via her website.  Use the online form to submit your information, and she will personally respond.  And if you are thinking of buying a property, schedule a free real estate investment consultation. I can help you find the home that best suits your needs and connect you with Diana if you want to turn it into a corporate rental.

For information on how to get started investing in Colorado Springs, check out our free 2021 Colorado Springs Real Estate Investing Guide.

We’re launching a new YouTube Live show called Drinks and Deep Dives with Chris Lopez! Why live? Well, because the market is moving so fast, that our content needs to move faster! You can find these episodes on both the Denver and Colorado Springs podcasts.

Two of our agents, Preston Newberry and Jenny Bayless, joined us to discuss what’s going on in Denver and Colorado Springs.

Both the Denver and Colorado Springs markets have record low active listings and investors are putting in multiple offers before going under contract.  But that doesn’t mean we aren’t finding good deals for our clients!

We did 2 deal analyses for properties in Colorado Springs: an 8 unit multifamily apartment building and a commercial office building.  Both of these are great properties that are poised to bring solid returns for our investors.  

Our client is just getting started on building his rental portfolio in Colorado Springs.  He’s been interested in saving and wealth building for a long time, and started listening to real estate podcasts to learn more.  He began investing in real estate a few years ago as a silent partner for a friend who started a house flipping business in Denver.  When he bought a new home, he decided to keep his previous residence and rent it out.  Since then, he’s acquired two additional single family homes in Colorado Springs. 

His long term goals are simple: build wealth and enjoy life.  

He plans to achieve these goals through a mix of investing in real estate, equities, and bonds.  

This property is a 3 bedroom, 1 bathroom single family home in central Colorado Springs. 

The home was well-maintained, turnkey, and located near development projects.  The neighborhood itself is less expensive, though it’s sandwiched between more expensive neighborhoods. 

He is going to keep this home as a long term rental as he acquires more rental properties in the area.

I found this property for him on the MLS.  Since his previous rental property was more hands-on, the client was looking for a property that was turnkey and provided a decent return from day 1.  He did not limit his search by property type (meaning single family, townhome, multifamily), and kept his options open and acted quickly when the right property came along.  

There were no major issues that came up during the inspection.  There were a few questionable items, such as potential rot in the siding and hairline cracks in the foundation, but our client brought in some professionals to assess them during the inspection process and was told everything was fine.  

The list price of the property was $250K.  Our client initially made an all cash offer of $257K.  After speaking with the listing agent, I was told that in order to the get the house, he would need to offer $263K in cash.   

Plan v Reality

The investor decided to do a few things to spruce up the home, such as adding a washer and dryer, replacing some blinds, and fixing the fence.  It took exactly a month from the close date to get a tenant moved in.  The main reason for this delay was because the listing agent failed to remove the property from the MLS, which caused the client’s ads to be removed.  Within two days of getting this corrected, he found a renter.  

Initially, the client wanted to rent out the property for between $1425-$1450 a month, but he was able to rent it out at $1500.  This was great, especially since the purchase price of the house was a little higher than anticipated.   

To be more competitive, the client made an all cash offer and used delayed financing.  This allowed him to pay for the home in cash and then go through his lender to refinance.  Usually with delayed financing, the buyer has to make a down payment of 25%, but in his case he only had to put down 23% because the house appraised at $270K, higher than he paid.  

For more information on using delayed financing, check out our podcast episode with Joe Massey.

The cashflow for this property is a little over $100 a month.  While this isn’t life changing money, it’s a good return for the area.  And because of how quickly properties are appreciating in Colorado Springs, the home is likely worth $280K now, giving him more options for later.  

He is going to hold the house as a mid to long term rental.  

The client plans to hold onto this property and shop the market for his next deal.  In the next two years, he’d like to build a portfolio of long term rentals.  His objective is to enjoy life, spend more time with his family and mountain biking, as well as learning as much as he can about real estate investing and building wealth.  Depending on how this plays out, he is considering land development, but that is far from a plan at this point.  Overall, he’s excited and curious for what the future holds in real estate!

If you’d like more information on the Colorado Springs market in general, you can schedule a free real estate investment consultation. For information on how to get started investing in Colorado Springs, check out our free 2021 Colorado Springs Real Estate Investing Guide.

Source: The above executive summary is from Lon Welsh of Your Castle Real Estate.

The Gazette recently reported that higher housing and gasoline prices pushed the cost of living in Colorado Springs last year to 103.4% of the national average which was the highest annual average the Council for Community and Economic Research has recorded in the 14 years the nonprofit has made that calculation. Rent for a 2 bedroom apartment in Colorado Springs increased at 3 times the rate of the national median to $1,386, or nearly 40% above the median in 2020. Prices for a new 4 bedroom house locally increased nearly 10% to $343,668, or 10.7% above the national average. Check out the Gazette article to get all the details.

In the last 12 months, Colorado Springs homes and condos are both continuing double digit appreciation. Inventory is again at record lows for both attached and detached properties. As a result, 77-82% of all properties in MLS are already under contract.

Inventory has steadily tightened since 2008. Months of Inventory (MOI) on 4/5/21 was just 0.3 for homes and 0.4 for condos. No end in sight to this sellers’ market. It became a sellers’ market in 2015. There is a lot of seasonality in MOI, the smallest number of homes are usually on the market in December/January, and the largest number of homes are usually available in late spring – early summer. Homes and condos mirror each other very closely.

Both markets have seen significant price appreciation in the past decade.

The first property we looked at is in the Belmont area in northeast Pueblo.  It’s close to the CSU campus and would be an attractive rental for college students. In general, Belmont is a well-established neighborhood full of mid-century homes.  This particular house was built in 1961, has three bedrooms and two bathrooms, and is in good shape overall, with an excellent exterior condition but a dated interior.  The house is listed for $220K and we estimated initial repair costs at $7K for new paint, replacing carpets, and other cosmetic fixes.  

Using our standard inputs for all entries, we estimate that the Net Operating Income (NOI) for this property is $10.5K, minus mortgage payments, which would be around break even for an investor.  The capitalization (cap) rate is on the lower end at 4.6%, but this home is located in a more expensive neighborhood in Pueblo.  Overall, this property would perform similarly to what we’re seeing in the Springs, but at a $220K purchase price, the cost to enter is much lower.

The second property we saw is in the Lake Minnequa neighborhood.  This is a good area that’s close to the hospital and has easy access to I-25.  The home has two bedrooms and one bathroom and was recently renovated.  For those familiar with the Springs, this area and home are reminiscent of the styles found in the Stratton Meadows neighborhood.  The purchase price is $145K, and we estimate $0 for initial repairs, since everything has been updated.  We noticed that the real estate taxes were particularly low at $450, which we believe is standard for this area.  

Again, using standard entries and including the going rate of $1K a month for two bedroom rentals in this area, the NOI for this property is $8200, minus mortgage costs.  The annual cap rate of this home would be 5.5%.  While I expected a little higher cap rate than this, the extremely low purchase price still makes it a solid investment.  

The final property we saw is a fourplex located in West Pueblo.  This is an up and coming neighborhood that is expected to grow even more once they finish the new aquatic center.  The fourplex contains four two bedroom, one bathroom units, each with their own fenced yard.  Three of the units have been recently renovated, but an investor would need to update the fourth after purchasing.  The purchase price is listed at $549K and we estimate the initial repair cost at $10K, what we were told the seller spent on renovations per unit.  The unrenovated unit is currently renting at $950 a month, while two of the renovated units are going for $1025.  The last unit is vacant, and it is possible that the rent for that one could be pushed a little higher.

Using standard numbers, the cashflow on this property is $12,653 per year with a cap rate of 6.4%.  With a fairly low purchase price and such a high cape rate, it’s no surprise this property went under contract immediately.  This is a great area of town to invest in and is only expected to grow.  

All together, these properties show that investing in Pueblo could be the right move for you.  Even though the returns on the two single family homes aren’t much more than you would find in Colorado Springs, the cost to enter is much lower.  Someone looking for more of a cashflow play within Colorado, and would like to stay around $200k should definitely look to Pueblo.  The return on the fourplex speaks for itself and would make a solid investment.  We’re excited to learn more about the market and bring you updates as we gather more data. 

Our goal is to find the right investment for you along the I-25 corridor, be it Denver, Colorado Springs, or Pueblo.  Depending your investment strategy and long term goals, we can find the right property for you in any of these areas.  

If you have an interest in investing in Pueblo, reach out:  [email protected], 719-649-4478.

Plan vs Reality

Notes regarding monthly rents: 2 tenants brought with him. $500 x 2. Fixing up master = $700. Rent 4th bedroom = $600

Continue rehabbing the home to push rents and force equity. 

He’s going to continue to rehab the house little by little with the positive cash flow he’s getting from his rental income.  In the next couple of years, he plans on renting out the entire home as either a single family or rent by room setup.  He’s hoping to purchase another property he can similarly fix up and rent out using house hacking.  

Jeremy was able to implement his investing plan by looking at different properties and figuring out exactly what he wanted.  By fully committing to the house hacking method, he’s already cashflow positive and well on his way toward buying his next property.  There were some hiccups throughout the process, but by being flexible and organized, we were able to get our client started on his house hacking journey.  

If you are interested in investing in Colorado Springs, contact us to get you oriented and help create a strategy:  

Jenny Bayless: [email protected], 719-649-4478

Interested in checking out more Colorado Springs rental properties? Find more Colorado Springs Rental Property Analyses here.

Plan vs. Reality

I am currently under contract for a smaller 3 bedroom 1 bathroom single family home near Fort Carson in the Springs.  We’re working through some inspection items right now, but I’m hopeful this will work out.  Given the extremely low inventory, I feel very fortunate to be in this position.  

After this, I will most likely go back to targeting properties in Texas for a couple of reasons.  The first is that it’s a little cheaper than Colorado, and the second is that I like to have the option of playing in two markets.  Being able to bounce between a cash flow and an appreciation market allows me to pull out equity from the Springs so that I can invest in the cashflow market in Texas.

Braden is a contributor to our 2021 Colorado Real Estate Investment Guide due out in May.  If you’d like to connect with Braden to discuss real estate investing, you can reach him here: [email protected], 575-308-3630, or via LinkedIn.

Interested in checking out more Colorado Springs rental properties? Find more Colorado Springs Rental Property Analyses here.